Homesfy Realty SME IPO Review (Apply)

• HRL is having asset-light business and provides advisory and marketing services for the realty sector.
• It has posted growth in its top and bottom lines for the reported periods.
• Based on the current financials, the issue appears reasonably priced.
• Post listing, it may generate first mover fancy, the only concern is longer gestation for migration to the main board.
• Well-informed, cash surplus investors may consider parking funds for long-term rewards.

PREFACE:

HRL is the first mover in the organized realty corporate broker space. In advanced countries, this concept is well accepted and many companies are listed on exchanges. Post listing, this company is likely to mark first mover fancy and generate investors' fancy. This company holds a pure long-term investment strategy.

ABOUT COMPANY:

Homesfy Realty Ltd. (HRL) is engaged in providing real estate broking services to Real Estate Developers, retail buyers/sellers, and investors for residential and commercial space. It deals in newly constructed properties, whereby the company assists Real Estate Developers in selling and potential customers in purchasing the properties. HRL operates business through direct selling from its in-house sales team and Direct Selling Agent listed on mymagnet platform for referral services.

Homesfy aims to create the best experience in housing transactions and services by focusing on productivity, transparency, and quality of service providers. It is driven by 4 pillars i.e. people, process, technology, and platform.

The company runs a brokerage business in name of Homesfy and is well-partnered with mymagnet platform. It currently maintains a network of 7 offices located in 4 cities, Mumbai, Pune, Noida, and Bangalore, which primarily engages in sales, marketing, and payment collection activities for the business.

HRL is well-posed to take advantage of the opportunities created by the increasing demand for real estate due to the rapid economic growth in India, the growing acceptance of new channels of real estate purchase such as tech-enabled platforms, Proptech, increasing internet penetration in India has led to the revolution in Indian real estate brokerage industry enabling customers, with new experience of real-time data, faster services, execution, and transparent transactions. As of October 31, 2022, it has 380 employees on its payroll including a sales team of 245.

ISSUE DETAILS/CAPITAL HISTORY:

HRL is coming out with a maiden IPO of 805200 equity shares of Rs. 10 each at a fixed price of Rs. 197 per share to mobilize Rs. 15.86 cr. The issue opens for subscription on December 21, 2022, and will close on December 23, 2022. The minimum application is to be made for 600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. HRL will utilize the net proceeds of the IPO fund for working capital (Rs. 11.61 cr.) and general corporate purposes (Rs. 2.90 cr.). The issue constitutes 26.36% of the post-issue paid-up capital of the company. HRL is spending Rs. 1.35 cr. for this IPO process.

The issue is solely lead managed by Sarthi Capital Advisors Pvt. Ltd., Bigshare Services Pvt. Ltd. is the registrar of the issue, and Rikhav Securities Ltd. is the market maker for the company.

HRL issued initial equity shares at par and then raised fresh equity shares at Rs. 197 per share in November 2022. It has also issued bonus shares in the ratio of 35 shares for every 1 share held in October 2022. The average cost of acquisition of shares by the promoters is Rs. - (14.66) per share.

Post-IPO, HRL's current paid-up equity capital of Rs. 2.25 cr. (2250000 shares) will stand enhanced to Rs. 3.06 cr. (3055200 shares). Based on the IPO pricing, the company is looking for a market cap of Rs. 60.19 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, HRL has posted a total income of Rs. 11.93 cr. / Rs. 0.91 cr. (FY20), Rs. 14.76 cr. / Rs. 1.99 cr. (FY21), and Rs. 30.40 cr. / Rs. 3.18 cr. (FY22). For the Q1 of FY 23, it earned a net profit of Rs. 1.39 cr. on a total income of Rs. 12.39 cr.

For the last three fiscals, the company has reported an average EPS of Rs. 481.62 (on the basis of pre-bonus and fresh issue of shares) and an average RoNW of 30.62%. The issue is priced at a P/BV of 0.09 based on its NAV of Rs. 2185.18 (on the pre-bonus and fresh issue basis) as of June 30, 2022, and at a P/BV of 1.74 based on its post-IPO NAV of Rs. 113.17 per share.

If we annualize FY23 earnings and attribute it to post-IPO fully diluted equity capital, then the asking price is at a P/E of around 10.87. Thus the issue appears reasonably priced based on its current financials. The company is operating an asset-light business with its advisory and marketing services.

DIVIDEND POLICY:

The company has not declared any dividends for any financial year so far. It will adopt a prudent dividend policy based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:

As per the offer document, HRL has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:

This is the 47^th mandate from Sarthi Capital in the last 11 fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount, 2 at par, and the rest with premiums ranging from 0.71% to 333.05% on the date of listing.